Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Why Record-High Stock Prices Mean You Should Buy More - 20th Nov 19
This Invisible Company Powers Almost the Entire Finance Industry - 20th Nov 19
Zig-Zagging Gold Is Not Necessarily Bearish Gold - 20th Nov 19
Legal Status of Cannabis Seeds in the UK - 20th Nov 19
The Next Gold Rush Could Be About To Happen Here - 20th Nov 19
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

The Technical Failure That Could Clear The Oil Glut In A Matter Of Weeks

Commodities / Crude Oil Jul 16, 2017 - 03:40 PM GMT

By: OilPrice_Com

Commodities

OPEC exports have come under pressure this week from technical threats to oil fields, with Saudi Arabia’s Manifa problems grabbing the headlines.

Saudi Aramco CEO Amin Nasser, while addressing the World Petroleum Congress in Istanbul, stated that the outlook for oil supplies is “increasingly worrying”, due to a loss of $1 trillion ($1000 billion) in investments last year. The skepticism shown by a majority of financial analysts and oil commentators about the real threat to global oil (and gas) production volumes was countered by the news that the production at Saudi Aramco’s main offshore oil field, Manifa, has been hit by technical problems. News sources reported that the output from Saudi Aramco's massive Manifa oilfield has been hit by a technical problem.


The impact of this possible technical mishap is not to be underestimated. Aramco’s Manifa is one of its biggest oilfields, with a targeted production capacity of around 900,000 bpd, to be brought onstream in two phases. At present, the main issue being reported on is that there has been corrosion of the water injection system, which is used to keep pressure in the reservoir. No facts have emerged about the total impact on the Manifa production capacity, but unnamed sources are already quoting ‘millions of dollars’ of losses. The current reports are not really worrying, as corrosion control in a water injection system is only a technical challenge. Maintenance of the field is expected, resulting in a shut-down of production – something that has been confirmed by Sadad Al Husseini, former VP Aramco. If the all production needs to be shut-down, Saudi Aramco’s overall production capacity will be cut by 900,000bpd.

The current corrosion problem at Manifa is not new when looking at the overall situation of some giant fields in the Kingdom. Aramco has been fighting an uphill battle for years to counter existing corrosion threats to the Ghawar, Manifa and other fields. The problem is immense, as main production wells could be completely blocked if no solutions are found for corrosion and scaling issues. Until now, no real solutions have been found, except the traditional mitigation in place.

At the same time, Saudi Arabia’s export volumes have been hit by high local summer demand for crude oil and products. The Kingdom already stated that it will cut overall crude oil shipments by around 600,000 bpd in August to balance the rise in domestic consumption during the summer. Increased local demand is not only a growing problem for Saudi Arabia, but for most Persian Gulf producers. Saudi August crude exports could fall to around 6.6 million bpd. A majority of cuts will be made to export volumes to the U.S. and Asia. Saudi sources expect that Saudi crude volumes to the U.S. will be below 800,000 bpd, while exports to Asia will be around 3.5 million bpd (decrease of 200,000 bpd). Europe’s imports will be only down by 70,000 bpd, reaching a level of 520,000 bpd.

When looking at the Saudi situation, the need for new investments and increased technology development is clear. Saudi Aramco’s investment of $300 billion in the next 10 years will, in large part, be focusing on the new technology needed to keep existing projects running while opening up new volumes in the future. Its drive to increase overall gas production will also be based on a two-fold approach. One is to counter growing domestic demand for natural gas as a power generator. At the same time, with most focus on crude oil production, gas will need to be reinjected into the field to keep production at necessary levels. Both targets will only be possible to reach if the growing technical challenges in gas production in the Kingdom, due to sour gas issues, can be countered effectively.

The Saudi situation is not different from its neighbors. The Kingdom has the same challenges as its current main political adversary, Qatar. The latter’s national oil company, Qatar Petroleum, has only been able to maintain crude oil production on its main offshore oilfield Al Shaheen through heavy investments from its former joint-venture partner Maersk Oil. After the Danish concession, the operations are set to be led by French oil major Total. The Al Shaheen oil field is located in Qatari waters, 80 kilometers north of Ras Laffan, with facilities consisting of 33 platforms and close to 400 wells. Currently producing about 300,000 barrels of oil per day, Al Shaheen is Qatar’s largest offshore oil field and one of the largest offshore oil fields in the world. The production has been one of the main revenue generators for the Qatari government. To keep production up, QP and Total have already announced the need for a $3.5 billion investment plan for the exploration of the Al Shaheen field. This was reported during the launch of the North Oil Company (NOC), which was established a year ago as a partnership between a wholly owned affiliate of QP (70 percent) and a wholly owned affiliate of Total (30 percent).

The challenges for this field are still immense. Already in 2013 QP asked all foreign operators to come up with redevelopment plans to increase recovery rates and, if possible, production at its mature fields. Between 2012 and 2016, Maersk had been working on field development, slated to have cost $1.5 billion, to sustain output at current levels. Sources indicated at that time that excessive associated gas at Al-Shaheen could prevent it from increasing crude output. Other geological challenges at the field include thin and stretched reservoirs. More knowledge of these thin reservoirs and extended wells is still needed. The fact that the French oil major Total has now taken over is not a surprise, with its technical capabilities and financial strength needed to counter the current problems. Qatar’s remaining fields are experiencing similar threats.

Amin Nasser’s aim is to go beyond global oil markets. His assessments are based on regional (OPEC) developments, as production of oil and gas in the so-called cheap oil regions is also under threat. These technical challenges will need an increased amount of investments, which will be hard to come by in today’s market. If Saudi Aramco or QP are already experiencing production threats, the situation in other production regions, such as Nigeria, Libya or Mexico, could be even more dire. With increased demand for crude oil and petroleum products still shown in all international assessments, the market will need to react. A production shutdown due to technical issues is not as easy to counter as a weather or geopolitical issue. More money is needed, otherwise production fields will be closed down and international clients, including utilities or chemical companies, will bear the brunt of it. A shutdown of one or two giant fields will take the market from an oil glut to an oil shortage within weeks.

Assessments that a shutdown in the Middle East or a major OPEC producer can be covered by new production elsewhere is not entirely unrealistic. But the current production increases in Nigeria, Iraq and Libya, will most probably be temporary. Growing political instability in Libya, as the LNA is targeting control of the country, or the re-emergence of the Niger Delta insurgency, will put a cap on increases.

By Cyril Widdershoven for Oilprice.com

source: http://oilprice.com/Energy/Crude-Oil/The-Technical-Fa...

© 2017 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules